House of Representatives

Explanatory Memorandum

(Circulated by the authority of the Treasurer, the Hon John Dawkins, M.P.)

Primary Production Definition

Summary of proposed amendment

1.1. The Bill proposes an amendment which will expand the definition of "primary production" to include "horticulture". The change is effective from (date of introduction).

Background to the legislation

1.2. "Primary Production" is defined for taxation purposes in section 6 of the Act. One limb of the definition provides that primary production means "production resulting directly from the cultivation of land". In this respect this limb of the definition is limited to conferring the status of primary producer (for taxation purposes) only on those taxpayers undertaking activities which involve the use of soil.

1.3. Whilst the cultivation of plants in pots using soil is accepted as being the "cultivation of land" for these purposes, some taxpayers believe that the phrase merely contemplates the cultivation of land which is real property. This could have the consequence that a nursery growing seedlings in a plot of earth would be carrying on primary production, while another nursery growing identical seedlings in potted soil would not. The proposed amendment removes any fear of such an inequity.

1.4. Due to the use of new growing techniques, many taxpayers engaged in the propagation or cultivation of plants do not use soil as a growing medium. Such taxpayers do not qualify as primary producers under the present definition. This situation is seen as inequitable. For example, a market gardener may use a hydroponic system so as to better control disease and nutrient supply. This taxpayer would not satisfy the present definition of "primary production", whereas another grower, producing the same product but using soil as a growing medium, would. The proposed amendment ensures that such growers are all treated as engaged in primary production.

1.5. The proposed amendment also clarifies other areas of uncertainty. It includes in primary production the growing of things that may not necessarily come within the meaning of plants, includes propagation as well as cultivation and includes the propagation or cultivation of parts of plants as well as plants themselves.

Explanation of proposed amendment

1.6. The Bill proposes an amendment to subsection 6(1) of the Act to extend the definition of "primary production" to include "horticulture". [Clause 4]

1.7. For this purpose, the term "horticulture" is itself defined. The definition of "horticulture" proposes a wide interpretation which is intended to add, where required, to the natural meaning of the term. That meaning includes the propagation or cultivation of plants and their products such as fruit, flowers and vegetables. [Clause 4]

1.8. The intention of the proposed statutory definition is to allow flexibility, especially in regard to future advances in plant technology.

1.9. What the proposed definition does is to:

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ensure that "horticulture" describes taxpayers who may be engaged in cultivation, propagation or both.

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ensure that the definition will apply to organisms that are vegetation, but may not necessarily come within the meaning of plants. Therefore the proposed definition expressly includes (but is not limited to) the propagation or cultivation of fungi. Things such as trees, shrubs and vines already fall within the definition.

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cover not only the propagation or cultivation of plants (and similar things) themselves, but also the propagation or cultivation of other parts of plants. Some examples of the parts of plants which may be cultivated or propagated are seeds, bulbs, spores, flowers, berries and nuts.

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expressly include propagation or cultivation in environments other than soil. This is intended to allow the growing of plants under intensive conditions, and to include the use of artificial media and environments. Examples of the sorts of artificial techniques that are already used are hydroponics and the use of rockwool or tissue culture.

1.10. Horticulture includes any combination of the things listed in the definition, whether with one another or with the ordinary meaning of the term. In this respect the definition will, in effect, be cumulative. For example, a taxpayer engaged in both propagation and cultivation of plants for both themselves and their commercially useful parts in an environment other than soil would fall within its scope.

1.11. The definition expressly excludes activity other than in the course of, or for the purposes of, a business. So, home gardeners are not as such engaged in horticulture, or primary production.

Commencement date

1.12. The amendment to the definition of "primary production" in subsection 6(1) will take effect from (date of introduction). [Clause 5]

Clauses involved in proposed amendment

Clause 4(b): adds "horticulture" to the matters included in the definition of "primary production" in subsection 6(1) of the Act.

Clause 4(c): adds a definition of "horticulture" to subsection 6(1) of the Act, including propagation as well as cultivation, in other environments as well as soil, of parts as well as whole plants or fungi, but excluding any activities that are not for the purpose of a business or in the course of a business.